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Global Sourcing (GS)Market Update: August 2006 – Preview Deck

Topic: Future Risks and Opportunities in the Outsourcing Market

ERI.2006.2.PD.0118

2Proprietary & Confidential. © 2006 Everest Partners, L.P.

ERI.2006.2.PD.0118

Table of contents

Topic Page no.Executive summary 3

Introduction/context setting 4

The US$88 billion renewal event 9

Key factors that will change the market 13Rampant growth of global sourcing 13Different bundling of functions 21Process-technology integration 33Supplier and location proliferation 37

Key implications 42Summary of trends and impact on outsourcing market 44Implications for buyers 45Implications for supplier 47


ERI.2006.2.PD.0118

Executive summary

The outsourcing market will see an estimated US$88 billion renewal event between 2006 to 2008

The renewal event will fundamentally change the outsourcing market due to four key factors:

Global sourcing will see rampant growth across all outsourcing areasFunctions will be bundled differently, unlocking additional value from outsourcingProcess-technology integration will gain ground rapidly, allowing for significant cost reductionOutsourcing locations and suppliers will proliferate, creating huge risks and opportunities

The completion of the renewal event will see a different set of advantaged buyers and winning suppliers (and many disadvantaged buyers and losing suppliers!)


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Of the total market size of US$400 billion, US$88 billion of ACV will be up for renewal during 2006-08

27%

37% 36%

ACV of deals up for renewal in 2006-08US$ billion

100% =~ US$88 billion1

Application Development and Maintenance (ADM)

Business ProcessOutsourcing (BPO)

Infrastructure Outsourcing (IO)

1 25% of deals up for renewal in 2006-08 have been renewed prior to Q12006Sources: Everest Deals Database, June 2006; Sanford Bernstein Research


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Global sourcing will continue to see strong growth

BPO ADM IO

Captive model dominant, but hybrid models will gain ground

Third-party model dominant, but hybrid models gain ground

Third-party model has initial advantage, but market too small to forecast direction yet

Models

Size/ penetration

Size: US$17-19 billionPenetration: 10-14% of outsourced market

Size: US$28-31 billionPenetration: 30-35% of outsourced market

Size: US$1.5-2 billionPenetration: 1-1.5% of outsourced market

Growth 40%+ growth 30%+ growth 50-70% growth

Source: Everest Research Institute


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Functions will be bundled differently- e.g., Applications are beginning to be bundled with BPO processes and sometimes with infrastructure

Frequency of combination of BPO with associated IT servicesNumber of contracts

17%

65%78%

35%22%

83%

HRO FAO Industry-specificprocess

98 89 467100% =

With IT component(s)

Without IT component(s)



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Integrated technology solutions can bring tremendous value in outsourcing deals

16-20208

16-2020

10

26-3030

6

18-22

30

16

Column 1 Cloumn2 Column 4

100

76-92

40

Indexed supplier rates for outsourcing for standard policy product management2003-2004; US$

Direct policy administration costs

Technology and ADM

Overheads

Margins

Internal Non-integrated technology solution

(large offshore)

Integrated technology solution

(zero offshore)

Technology standardization and integration not only lowered the technology costs, but also brought down the associated process costs significantly

Technology standardization and integration not only lowered the technology costs, but also brought down the associated process costs significantly

Sources: Everest Research Institute; Everest Advisory


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Location choices are starting to explode

Bangalore

Delhi

Shanghai

Cincinnati

Mexico City

Buenos Aires

TorontoPrague

Copenhagen

LisbonBudapest

Warsaw

Barcelona

Belfast

DallasJuarez

MonterreyMontego Bay

San Jose

Sao Paulo

Curitiba

Melbourne

Singapore

Cape Town

Dalian

Guangzhou

Mauritius

Kochi Chennai

MumbaiGandhinagar

Johannesburg

Zagreb Bucharest

Aarhus TallinHelsinki

Turku

Oulu

CorkDublin

BratislavaKrakowPoznan

GoteborgLinkoping

StockholmMalmo

Glasgow

Leeds

Accra

TunisCasablanca

Nairobi

Cairo

HalifaxBoise

BangkokHanoi

Tianjin

PuneKolkata

Santiago

San Antonio

Kuala Lumpur

Note: Map not to scaleSource: Everest Research Institute

Cities that host delivery centers(tracked by Everest Research)


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Summary of trends and impact on outsourcing market

Currentpenetration

Economicimpact

High Medium Low

Risk impactFutureuncertainty

Global sourcing

Bundling of functions

Process-technology integration

Supplier and location proliferation



ERI.2006.2.PD.0118

Get the answers today that lead to tomorrow’s success

Everest Research Institute has the resources, experience, and capabilities to provide companies with the strategic intelligence, analysis, and insight that are crucial to making the right decisions in today’s outsourcing marketplace.

For more information or to purchase the full report, contact Peter Bowes at [email protected].

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